10-QPeriod: Q2 FY2015

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 5, 2015For Securities:OKE

Summary

ONEOK Inc. reported its financial results for the second quarter and first half of 2015. Total revenues decreased by 31% for the quarter and 37% year-to-date, primarily driven by lower commodity sales prices, especially for natural gas and NGLs, which were impacted by a significant decline in WTI crude oil and NYMEX natural gas prices since late 2014. Despite the revenue decline, net income attributable to ONEOK increased by 24% for the quarter, driven by a reduction in net income attributable to noncontrolling interests. However, net income attributable to ONEOK decreased by 11% for the first six months of the year. ONEOK Partners, a significant portion of ONEOK's operations, experienced a decline in net margin for the first six months, largely due to lower commodity prices. However, service revenues increased due to higher natural gas and NGL volumes from recently completed capital projects. The company continues to invest in growth projects, particularly in the Natural Gas Liquids and Natural Gas Pipelines segments, with projects like the Roadrunner Gas Transmission joint venture and WesTex Transmission Pipeline expansion underway to capitalize on increased demand, especially from Mexico. The company maintains a positive outlook on its fee-based businesses and expects continued growth in its operations, albeit at a slower pace than previously anticipated due to market conditions.

Financial Highlights

50 data points
Beta

Revenue

$2.13B

24.7% Gross Margin

Net Income

$76.50M

3.6% Net Margin

EPS (Diluted)

$0.36

Total Assets

$15.65B

Cash & Equivalents

$226.19M

Free Cash Flow

$9.05M

Financial Statements
Beta
Revenue$2.13B
Cost of Revenue$1.60B
Gross Profit$524.96M
Operating Expenses$252.34M
Operating Income$272.74M
Interest Expense$102.38M
Net Income$76.50M
EPS (Basic)$0.36
EPS (Diluted)$0.36
Shares Outstanding (Basic)210.20M
Shares Outstanding (Diluted)210.48M

Key Highlights

  • 1Total revenues decreased significantly in Q2 2015 and YTD 2015 due to lower commodity sales prices, impacted by falling crude oil and natural gas prices.
  • 2Net income attributable to ONEOK increased by 24% in Q2 2015 but decreased by 11% YTD 2015, reflecting the impact of lower earnings from ONEOK Partners and changes in noncontrolling interests.
  • 3ONEOK Partners is actively expanding its Natural Gas Liquids and Natural Gas Pipelines segments with significant growth projects, including the Roadrunner Gas Transmission joint venture and WesTex Transmission Pipeline expansion.
  • 4The company is focused on converting its commodity-based contracts to fee-based contracts or increasing the fee component to mitigate commodity price volatility.
  • 5Capital expenditures decreased in the first half of 2015 compared to the same period in 2014, reflecting the completion of major projects in 2014 and a more cautious approach to new investments due to market conditions.
  • 6ONEOK Partners has substantial liquidity and access to credit facilities, with credit ratings remaining investment grade despite market pressures.

Frequently Asked Questions

The primary driver for the revenue decline is the significant decrease in commodity sales prices, particularly for natural gas and NGLs, which are directly influenced by the sharp drop in WTI crude oil and NYMEX natural gas prices observed since late 2014.

ONEOK is mitigating the impact of lower commodity prices by focusing on its fee-based businesses within the Natural Gas Liquids and Natural Gas Pipelines segments, actively pursuing opportunities to convert commodity-based contracts to fee-based structures or increase the fee components in existing contracts, and utilizing hedging strategies for a portion of its equity volumes.

Key growth initiatives are concentrated in the Natural Gas Liquids and Natural Gas Pipelines segments, including projects like the Roadrunner Gas Transmission joint venture and the WesTex Transmission Pipeline expansion. These projects are being financed through a combination of operating cash flows, debt issuances, commercial paper, and equity issuances.

While the lower commodity price environment is expected to continue impacting results through the remainder of 2015, ONEOK anticipates a modest recovery in 2016. The company expects continued growth in its operations, particularly from fee-based services and recently completed capital projects, which should favorably impact financial results in the second half of 2015.